France: Moving towards "greener" growth?

Ann Vourc'h

Economics Department

Page 32

Cars are clearly the costly way to travel in peak times , but the cost advantage of buses diminishes in off-peak traffic in the Paris region.

The French authorities are strengthening their polices on the environment as the public increasingly demand better air quality, purer water and better protection for their natural resources. Putting these policies into practice is not as simple as it may seem.

France is a country of contradictory images when it comes to the environment. Traffic-filled cities, yet fast and extensive public transport; bucolic expanses of farmland but rural waterways seriously polluted by fertiliser runoff. In fact, France is often, though perhaps unfairly, considered to be in the slow-to-middle lane among OECD partners when it comes to some environmental standards and public attitudes to poor environmental practices. But that is changing and there are increasing signs that the environment is looming ever larger in people’s preoccupations and public debate.

In everyday life, the French increasingly aspire to better air quality, purer water and better protection for their natural areas. The authorities are gradually responding, with concrete measures aimed at improving the trade-off between growth and the environment. But how can growth be made ecologically sustainable? Until recently, environmental policy relied essentially on regulations, including technical standards, and major strides have been made towards containing industrial pollution. For several years now, in France as elsewhere, the emphasis has been shifting towards economic instruments such as taxes and charges as a means of generating prices for the use of natural resources or the environment that are more in line with the costs that this use inflicts on society. In this way, environmental concerns can be better integrated into economic decisions. After all, as was noted at the OECD ministerial meeting on environmentally sustainable growth, it is often more costly to repair damage than to avoid it.

But using economic instruments to get people to change their behaviour is not without pitfalls. It is not easy to shift from a conception of an environment that is “free of charge” to an approach that charges individuals and firms for its use.

Making the polluter pay

While the principle that the producer of pollution should pay for the costs it generates is widely accepted, in practice many supposedly green taxes do not yet fulfil that role effectively. In France, existing taxes on energy products were either introduced for budgetary reasons or to promote conservation, but they bear little relation to the social and ecological costs that those products engender. Coal, for example, which is one of the most highly polluting fuels, is exempt from all French taxation. Furthermore, energy consumption of households is taxed more heavily than that of businesses, even where both kinds of consumption are equally noxious for the environment.

In an effort to address some of these anomalies and to combat climate change, the French government recently sought to introduce a tax on the intermediate energy consumption of businesses. The plan was designed to minimise the impact on firms’ overall cost competitiveness but maximise incentives to reduce excessive polluting practices. In other countries implementing carbon taxes, competitiveness concerns have led them, perversely, to exempt, or offer reduced rates to, the very sectors that consume the most energy and pollute the most. The proposed French law sought to resolve this problem by charging all firms the same rate of tax on their energy consumption – at the margin. However, in order to minimise the competitiveness impact of the reform, it proposed offering tax deductions to firms on the basis of their initial energy intensity.

In other words, firms would be taxed only on some of their energy consumption, but at the margin they would be taxed at the full rate – thus preserving incentives to reduce energy consumption. However, the Constitutional Council rejected the bill as unconstitutional, arguing that because average tax rates paid by firms would differ, the proposed law introduced unequal treatment of taxpayers.

The government is considering negotiating with industry to obtain voluntary commitments to reduce emissions. Judging by international experience, there is a strong risk that this approach may lead to reduction targets that are not ambitious enough for France to honour its pledge under the Kyoto Protocol to stabilise greenhouse gas emissions at their 1990 level by around 2010. Indeed, the authorities face a real quandary, for even if some companies see clean environmental practice as making good business sense these days, it is quite unrealistic to expect all firms to “volunteer” to shoulder the cost of reducing emissions that are currently free of charge.

And, apart from a tax or a broad-based emissions permit market such as the one for sulphur dioxide in the United States, there are few instruments that governments can use to induce a change in behaviour. Whatever approach is taken, energy-intensive industries and their cost structures will be affected, but there is little alternative if the goal is to steer the economy towards a productive structure that generates less pollution.

Those roads

Road traffic and urban air pollution represent another instance where efforts to move towards greener policies will necessarily impose unwelcome costs on those currently consuming environmental resources for free. Despite relatively efficient public transport in major French cities like Paris, Lille or Toulouse, road traffic has been increasing constantly. So, while the efficiency gains of individual engines have improved and emissions per kilometre and litre of fuel declined, the overall impact of the car has risen in terms of traffic and urban sprawl. In other words, the public costs of car use have risen, though the private costs may have fallen. Moreover, existing fuel taxes are not designed to make cars pay for more of this public cost, which vary according to location, time of day and type of vehicle. Yet, the consumption of one litre of fuel by an old car in town during the rush hour inflicts far more damage than the consumption of that same amount of fuel by a new car on the open road. Much could be gained by reforming transport taxes and charges, including tolls.

While it is now technically possible, an electronic toll system covering an entire metropolitan area would still be costly. However, these costs are likely to fall over time and would be offset anyway by savings in health and economic costs. Although the French are accustomed to paying motorway tolls, they might not accept urban road pricing as easily: mobility is often considered a fundamental right that should not hinge on one’s ability to pay. But if city road tolls were presented as a way of improving mobility and saving time, support could grow. Already, experience in France and elsewhere suggests this to be the case. (See article by Anthony Ockwell). In the shorter term, partial alternative solutions are possible, such as motorway payments allowing access to the centre of metropolitan areas, as is currently under consideration in the Netherlands.

In France – and in Paris in particular – both parking charges and fines could be raised to deter unnecessary traffic and reduce congestion. Street parking charges are significantly lower than market rents for the space occupied. And fines for overtime parking are so low that it is often cheaper to pay a parking fine than to feed the meter – a situation quite unlike London or New York for instance, where fines are many times higher than parking fees. Tackling these issues would help not only to improve environmental policy, but assist other ongoing initiatives as well, like the planning of cycle lanes and green spaces.

If there is scope for improving the effectiveness of environmental policies, it is in eliminating the environmentally detrimental incentives provided by other policies, such as in agriculture and transport. The tax differential between diesel fuel and petrol is large in France, and in 2001 the number of diesel cars sold exceeded petrol cars for the first time. And yet in urban areas a litre of diesel fuel produces as much greenhouse gases as a litre of petrol, and more pollution. New diesel engines are available that produce lower greenhouse gas emissions on the open road, but these are more prone to generate the type of emissions, like nitrogen dioxide, that cause acid rain. Which of the fuels is less polluting overall is an unresolved debate; what is clear is that France’s current tax preference awarded to diesel is excessive. The government is aware of this fact. In 1998 it pledged to narrow the differential, but suspended the idea when petrol prices rose in autumn 2000. It has not renewed its pledge since.

There is clearly some way to go before an environmentally coherent strategy emerges in France, though sustainable growth is starting to be reflected in French policies. With the euro out of the way as a priority election issue, perhaps green considerations will come more to the fore in future policymaking.

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